USTELCOM Proposal Could End 8YY Call Arbitrage

August 26, 2020 | by Andrew Regitsky

USTELCOM Proposal Could End 8YY Call Arbitrage

The one remaining significant access arbitrage problem involves 8YY calls. There is little doubt that many 8YY call charges are fraudulent and are generated precisely to assess unwarranted or excess usage-sensitive originating access charges and 8YY data base charges to long-distance providers. For several months, there have been indications that the FCC may use ongoing Docket 18-156 to finally address this issue by moving all originating access charges to bill-and-keep.  That proposal understandably generated blowback from rural rate-of-return (ROR) ILECs concerned they would lose considerable access revenues without an adequate recovery method.

The pandemic put the brakes on further Commission action to resolve the issue but also obscured a USTelecom proposal presented in late February that would eliminate excess 8YY charges and provide a clear path for ROR ILECs to recover lost access revenues from the Connect America Fund (CAF).  Importantly since this proposal, unlike the Commission’s, would not eliminate all originating access charges, ROR ILEC would have significantly less revenues to recover from the CAF.

USTelecom introduced its proposal in a February 25, 2020 letter to the FCC in Docket 18-156.  It includes these principles:

1. Transition end office access charges to bill-and-keep; 

2. Replace existing tandem switching and usage-based transport charges with a new, single uniform low charge for tandem services; 

3. Create a transition to a uniform, low database query (DBQ) rate; and 

4. Allow for reasonable recovery of revenues consistent with the principles of no flash cut rate reductions.

Here are more details of the proposal.

End Office Transition

USTelecom proposes the following transition schedule for 8YY intrastate and interstate end office charges to bill-and-keep:  

Step 1 (Jan. 1, 2021): All intrastate switched end office rates associated with 8YY traffic are reduced to their functionally equivalent interstate rates; if originating intrastate rates are lower than interstate, then the rates would be capped at their current levels. 

Step 2 (Jul. 1, 2022): Step 1 intrastate and interstate switched end office rates associated with 8YY traffic are then reduced by 50 percent. 

Step 3 (Jul. 1, 2023): All switched end office rates associated with 8YY traffic would be reduced to bill-and-keep.

Tandem Transport 

Common Transport - On Jan. 1, 2021, all common transport charges associated with 8YY traffic (intrastate and interstate) would move to zero and become subsumed into a single uniform rate associated with tandem switching costs as described below.  Where common transport is provided independent of the tandem, it will be subject to bill-and-keep. 

A Nationwide Uniform Tandem Switched Transport Access Service Rate - Also on Jan. 1, 2021, tandem providers would eliminate existing charges that fit within the definition of Tandem Switched Transport Access Service and would instead be permitted to charge a single Tandem-Switched Transport Access Service rate for 8YY traffic, which would be capped at a single nationwide rate of $0.001/minute. This rate is exclusive of any dedicated port charge at the tandem.

Database Query Rate

Step 1 (Jan. 1, 2021) - All DBQ rates will be capped at the national weighted average rate of $0.004248.  Rates above the cap will be reduced to the capped level and rates below the cap will be capped at their current levels. 

Step 2 (Jul. 1, 2022) - Rates are transitioned down from the Step 1 rate half of the way to the final target rate of $0.0002 (i.e. the estimated cost of performing a database dip).  Ex. ($0.004248-$0.0002)/2= a reduction of $0.002024 or a new rate of $0.002224).  If a carrier’s capped rate is below the national weighted average, then it will use that capped rate in place of National Average number used in the formula above to derive its Step 2 target rates. 

Step 3 (Jul. 1, 2023) - All rates are reduced to the final uniform nationwide target rate of $0.0002.

Revenue Recovery

Price Cap ILECs 

Jan. 1, 2021 - Freeze subscriber line charge (SLC) rate caps for price cap carriers as of July 1, 2020 and divorce the SLC calculations from underlying price cap formula.  Price cap carriers would be permitted to increase SLCs beyond those caps up to an additional $0.50, subject to market forces.  Any use of such SLC flexibility would have no effect on the calculation of access recovery charges (ARCs), which would continue to be calculated, including for the purposes of limits on ARCs or overall charges, based on the SLC as of July 1, 2020. 

July 1, 2022 - Price cap carriers would be permitted to increase their SLCs by a total of $1.00 above their frozen SLC cap amount (i.e., for those that increased their SLCs by $0.50 earlier, up to another $0.50 constrained by market forces). Again, the use of this SLC flexibility would have no effect on the calculation of ARCs.

Rate-of-Return ILECs

Because of the importance of switched access revenues to ROR carriers. USTelecom proposes that making use of the existing CAF ICC support mechanism is the most administratively simple and effective means for providing sufficient support required.

While much of the industry reacted positively to the USTelecom proposal, tandem and transport providers did not.  These providers complain that since they do not assess originating loop and end office service to end users, they could not use a SLC increase to recover lost revenues.  Moreover, they complain that there is no mechanism in the proposal to require large 8YY providers such as AT&T, Verizon and CenturyLink to pass through there to tandem and transport providers.

These tandem and transport providers also complain that USTelecom froze them out of the proposal negotiations when they tried to participate.  They suggest that the proposal was designed to serve only the needs of USTelecom’s members by “fixing” the 8YY problem and ensuring only they are made revenue whole.

An additional potential problem with the proposal could occur if the Commission eliminates end user access charges including SLCs as it is considering in Docket 20-71.

The Commission is expected to decide the 8YY issue sometime this year.  It is likely that the USTelecom proposal (with certain adjustments) will play an important role in that decision.